Alkermes and Elan Drug Technologies to merge in $960 million deal

Deal will involve, among other things, Boston-area Alkermesre-incorporating in Ireland and setting up its headquarters there

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WALTHAM, Mass. & DUBLIN—Boston area biotech Alkermes Inc. has announced a rather sharp change in strategic direction and location with the news that it has executed a definitive agreement to merge with Ireland's Elan Drug Technologies (EDT), described as "the profitable, world-class drug formulation and manufacturing business unit of Elan."

The deal will be a cash and stock transaction currently valued at approximately $960 million, and will result in Alkermes and EDT combining under a new holding company incorporated in Ireland that will be named Alkermes plc. Elan Corp. plc will receive $500 million plus an equity stake of 25 percent in Alkermes. Alkermes plc's board of directors will essentially be the current board of Alkermes Inc., though Elan has the right to appoint one independent director to the board of Alkermes plc, as long as it maintains ownership of 10 percent or more of Alkermes plc's stock. The deal is subject to approval by Alkermes shareholders and customary closing conditions, with an expected closing date in the third quarter of 2011.

The companies expect the transaction to be immediately accretive to cash earnings and accelerate Alkermes' path to building "a sustainably profitable biopharmaceutical company with expertise in developing treatments for central nervous system (CNS) diseases and a broad, diversified portfolio of products and pipeline based on proprietary science and technologies."

The combined company will enjoy "diverse revenue streams" from 25 commercialized products, with future near-term growth expected to be driven by five major products: Risperdal Consta, Invega Sustenna, Ampyra, Vivitrol and Bydureon and—with these and other assets—they expect to see growing product, royalty and manufacturing revenues in excess of $450 million annually and to have resources "to prudently invest in an innovative pipeline of proprietary drugs."

"The merger will be financially transformative and create a profitable, global biopharmaceutical company with a diversified CNS product portfolio and a strong foundation for growth," says Richard Pops, CEO of Alkermes. "Both companies have a proven track record as innovators. This merger will bring the scale and resources for strategic and balanced investment across the whole product continuum, from R&D innovation to clinical development, to world-class manufacturing and commercial expansion."

A key aspect that attracted the companies to the idea of a merger is that all of the products in their combined portfolio have long patent lives and what are seen to be significant growth potential in large therapeutic areas. Also, Alkeremes has reported that it anticipates approximately $20 million of annual synergies in U.S. operations by fiscal year 2013, with most of these savings coming from EDT plants in Georgia and Pennsylvania. Also of note is that in April, a European regulatory committee provided a positive opinion regarding Alkermes' experimental diabetes treatment, Bydureon, which means the chances of approval for the drug in Europe are high.

The merger isn't a guarantee of market success for the newly combined company, but it is a potentially positive shift for EDT, with the Wall Street Journal noting that this move is "Elan's latest attempt to draw a line under a troubled nine-year period that has seen it hammered by accounting problems and as the initial high hopes for blockbuster multiple sclerosis drug Tysabri were dashed by side effects of the medicine."

With this deal, the pharma and biotech worlds will see the  joining of two companies that have primarily focused on technologies that improve the delivery of drugs made and sold by other companies. EDT, for example formulates the once-monthly schizophrenia drug Invega Sustena sold by Johnson & Johnson and the multiple sclerosis medicine Ampyra from Acorda Therapeutics, generating some $261 million in revenue last year with these and other assets.

For its part, Alkermes is the drug-delivery technology partner of Eli Lilly and Co. and Amylin for the once-weekly diabetes drug Bydureon and in its current solo incarnation, Alkermes is expected to show $181 million in revenue in the fiscal year ended March 31, most of which comes from royalties derived from Risperdal Consta, a schizophrenia drug marketed by J&J—making for some overlap between Alkermes' and EDT's partnerships. Recently, though, Alkermes has begun developing and marketing its own novel drugs, such as Vivitrol for dealing with alcohol and opioid dependence.

Kelly Martin, CEO of Elan plc, notes that upon closing, this transaction aggressively advances a number of long-standing strategic and financial objectives for Elan, saying: "Namely, it enables us to reduce the debt on our balance sheet and further improve our capital structure, increases operating leverage, allows for additional focus and continued disciplined investment in a broad array of opportunities within the neurology space from a scientific, clinical and product point of view and lastly, provides Elan shareholders with the opportunity to realize further value—over time—from the equity position in Alkermes plc."

"The combination of Alkermes and EDT is a strong strategic fit at the right time when both businesses are strong and positioned for growth. With EDT's two recently approved drugs, Invega Sustenna and Ampyra, driving revenue growth, the EDT business is an ideal complement to Alkermes' portfolio of approved and development-stage drugs," adds Shane Cooke, executive vice president and head of EDT. "This combination creates opportunities for our employees and provides a platform for future growth."

Boston-area employees and market-watchers have, of course, been concerned about what a move to an Ireland headquarters might mean for the American-based operations, but Alkermes has told media outlets like the Boston Business Journal that the merger will not lead to layoffs in Massachusetts, where approximately 300 employees work in Waltham. In addition, the nearly 300 employees in facilities in Ohio are expected remain in place.

Relocating the company's headquarters to Ireland and incorporating there is solely for legal, financial and tax reasons, according to an Alkermes spokesperson. This new Alkermes will be led by Pops as chief executive, with Cooke to serve as president.

Among the proprietary technologies of the combined company would be EDT's NanoCrystal technology for poorly water soluble drug compounds, EDT's proprietary technologies for oral controlled release drugs and Alkermes' long-acting injectable drug technologies

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